Out of the Shell: Oil Giant's Big Biofuels Ambitions

In this era of "repeal the RFS" efforts from API, would you be surprised that Shell regards the US Renewable Fuel Standard as "one of the more effective frameworks out there"?

Truth be told, Shell has the size and global perspective that requires it to think long-term, and with complexity — about the global energy business. Accordingly, they see opportunities in ethanol, diesel, gasoline and jet fuel — and are investing across the board in advanced technologies.

To understand more of the what, why, where and when, we turned with Shell’s Vice President for Alternative Energy — who brought Shell’s plans and thinking, well, just a little more out of the shell.

Brazil vs Other Geographies

BD: Let’s talk about Brazil. Is this a case where Shell sees biofuels as a special opportunity within Brazil, or is Brazil the first of many countries.

MT: In 2001, we started working on our first advanced biofuels project, the first of many. Five years down the track, we realized the time scales were longer than expected, longer than any one expected.

We had the ambition to create a significant biofuels business by 2015, ten years out from that time.

We could see we weren’t going to get there on that timeline, while at the same time Brazil was emerging as a major player.

We had been active there in downstream for decades, almost a 100 years, and we had ambitions to grow market share there. The strategic thinking was to grow the downstream, and build a large biofuels manufacturing business with the best biofuels option available, sugarcane ethanol.

Cosan had the downstream presence and a large sugarcane ethanol business, and we could look at a combination in various ways. It made sense for Shell to develop more there — not only delivered for us as a first biofuels market — but it was a sizable downstream business for us, with lots of potential benefits. For example, how to deploy cellulosic.

The geography is more global. Our ambition is not limited to Brazil. Having delivered that venture, and its up and running — now we are back on to adding focus on North America and the EU.

Drop-in Fuels vs Novel Molecules

BD: Drop in fuels vs novel molecules like ethanol – you’re making ethanol, but also working on renewable gasoline, diesel and jet fuel with Virent. How do you see the different challenges and opportunities?

MT: A true drop in is chemically no different than any fuel component in the refinery. It’s another molecule can be easily blended at high ratios into gasoline or diesel, for example, without dedicated infrastructure. It’s a molecule that also has comparable energy density to diesel and gasoline, and other performance characteristics. Something really similar.

It’s self-explanatory why we need to do that. We’ve seen the blend wall emerge in the US sooner than anticipated — it is here and now. And we see similar issues in the EU for biodiesel, with limits there around B7 there. It’s clear to us that more compatible products – especially for markets like shipping or aviation – are needed. We need to find solutions for distillates. But we have not given up on ethanol either. We can see a role for ethanol in the mix — not limited to Brazil. Particularly if competitive on price — in spite of these constraints that the retail structure and the fleet impose.

With any product, but energy in particular, for a new technology to succeed it has to deliver on cost and performance and demonstrably better. In our sector, to displace oil without subsidy, clearly heavy costs can be imposed by infrastructure, or vehicles. You can point to drop-ins that minimize these challenges. But clearly Brazil has done it — succeeded in that challenge, even with ethanol.

The Virent Partnership for Renewable Drop-in Fuels

BD: The Virent partnership — its been marching along steadily — then, unusually, you accelerated with a decision to build your own pilot plant down in Houston to complement the work done in Madison. Why all the extra construction?

MT: The collaboration has been very successful for our point of view — its a very competent shop, in my opinion, and we are very pleased with the progress based on starch and sugars from cane or corn.

We had hoped that would be sufficient to build a business. But with the price of conventional sugars, it’s a challenge. We need something different to make it work for fuels — corn and cane sugars work better for chemicals [based on price]. So we needed to develop further a process that would start with biomass. We have the technology with Virent and the license. What we’ve done is to convert biomass as a front-end to the Virent process.

Making Renewable Sugars vs. Procuring from Others

BD: Why not turn to one of the many renewable sugar developers now emerging?

MT: There, we need to tailor the quality of the sugar for the process, and we need to have confidence in the developer. We decided to put our confidence in ourselves and our own technology. It’s one of the difficulties we all face. We are limited on plant scale because of the cost of transporting biomass, and we can’t afford too many process steps.

So we need to integrate the steps to minimize the capital intensity, instead of marrying an external sugars process to ours., Now, we’re not saying that we have got the answer…

Looking at Feedstocks

BD: Feedstocks — what are you are looking at? Just bagasse, or more widely?

MT: We are looking widely at feedstocks — at those commonly found in North America. Clearly the US has a strategic intent to develop advanced biofuels and has regulatory structure to support that and the first developments.

Looking at Policy

BD: As we look at policy, what do you see as your core policy needs? Is stability the most important criteria? What about various new supports?

MT: We need a pathway that demonstrates what the strategic intent of US and EU is, through to 2030. We need a clear framework that runs out to then. We recognize that there are many competing technologies out there — some very strong in my opinion — and we aim to be competitive, too — we needpolicies that balance [not picking technology winners] and “certainty”. That’s a difficult balance.

We think the RFS does a pretty good job. It’s one of the more effective frameworks. One thing we would like to know is what it will look like after 2022, because clearly these are 20-year investments.

Financial, Investment and Partnership Structures

BD: Structures. Shell’s been involved in JVs, strategic partnerships and in-house development of technologies. How do you look at the strategy for developing the right business structures?

MT: Well, start with the basic idea that form follows function. You decide what you want to do, then look at what structures work. We want to build, own and operate a significant biofuels business — to complement what we have in Brazil. At least as big as that.

How do we get there? In terms of how we develop, clearly we’ve had JVs, but we have moved towards making for ourselves. For specific items — for example, for biocatalysts we are now seeking to procure those now rather than develop. But in all areas, we play to our strengths, partner with others where it makes sense.

In deployment, when ready, then there will be a discussion around the resource partners. With forest or farmer partners — how broadly we would seek to operate for ourselves — for downstream needs? We are always testing.

4 Comments

Cliff C-----------" This article claims that "Brazil has done it — succeeded in that challenge, even with ethanol." What they have done is create a process irreproducible in the United States where cane fields are planted on slash-and-burn forest land,"------------

90% of sugar cane in Brazil is grown in the Mata Grosso plateau----analogous in climate and extent to the US Great Plains. There isn't a forest within 1,000 miles of the main sugar growing areas. It's like claiming to slash and burn forests in the Oklahoma and Texas panhandles..

CC---------" the crop is set aflame prior to harvest to burn up the "trash" parts of the plant and partially dehydrate the stalks,"----------

The bagasse[the waste part of the cane plants, including the crushed cane stems the juice comes from] are dried and burned to produce electricity. This produces enough electricity to process the sugar, ferment and distill the ethanol, and still feed about 25 to 30% of the energy produced into the electrical grid. After it is burned, the ash is recovered, mixed into a slurry with water and sprayed back onto the harvested fields as fertilizer----the same process nature has used to enrich the soil in prairie grass regions for millions upon millions of years.

CC------------" the cane is harvested largely by machete-wielding pseudo-slave native Indian laborers,"-----------

The harvesting is fully mechanized using specialized equipment developed in the 1980s and 1990s by the Brazilian government.

CC--------" Even so, the EROI of their process is less than 2:1, not the 8:1 often claiimed."------

This is simply not true. The EROI is about 8 to 10:1, about 2X the EROI of energy produced from the Alberta Tar Sands. If this were not true, they'd be out of business by now. They've been doing this for about 20 years.

CC----------" The Brazilian government has shifted its attention from ethanol (which had a bad crop in the 2011-12 season and forced them to reduce their gasohol blending from 25% to 20% and IMPORT 1.2 billion liters of ethanol)"------------

The Brazilian RFG has always had a provision for fluctuation of 22 to 25%----the exact formulation set for the next year by the Ministry of Agriculture based on the last year crop production. The RFG revision has only been done once.

CC---------" ExxonMobil, Chevron, BP and especially Shell (look up Codexis and Alan Shaw) have frittered away hundreds of billions of dollars in a vain pursuit of biofuels. If they are truly energy companies instead of public relations firms and are truly committed to succeed as viable commercial enterprises instead of live by subsidies and corporate welfare, then they need to abandon this foolishness and pursue what works instead of what is politically correct."-------------

Brazil has gone from a petroleum importing country to a major oil exporting country because they have reduced their own use of petroleum over 50%----leaving them plenty of oil to export to the US. Not only are they now a major petroleum exporting country----they are also the #2 ethanol exporting country in the world. They have their cake and are eating it too.

Cliff I have accused someone by the same name of disinformation on climate change at other sites, but your discussion here seems cogent. Perhaps because I don't know much about this subject. The argument is impressive, if it is true. This is what I would expect, starting from the work of Robert B. Laughlin (Powering the Future).
So then, what works? Just fossil fuels?

All "drop-in" hydrotreated biofuels are net energy negative because the hydrotreatment process of adding natural gas hydrogen and removing oxygen and producing huge quantities of CO2 is energetically ruinous. Shell has enough engineers and PhD scientists to have figured this out by now. They also know that the majority of the energy inputs to both "drop-in" biofuels and "special molecule" fuels such as ethanol and FAME biodiesel are from non-renewable fossil fuel, so it is a myth that biofuels are renewable. They are, in fact, a way to consume even more fossil fuel per unit of energy delivered to society than just consuming the fossil fuels directly as fuel. This article claims that "Brazil has done it — succeeded in that challenge, even with ethanol." What they have done is create a process irreproducible in the United States where cane fields are planted on slash-and-burn forest land, the crop is set aflame prior to harvest to burn up the "trash" parts of the plant and partially dehydrate the stalks, the cane is harvested largely by machete-wielding pseudo-slave native Indian laborers, and the mills are powered by burning cane straw bagasse. The process produces huge billowing clouds of black smoke, particulates, and CO2. The EPA and NLRB and even Amnesty International would never let any of this happen in the US. Even so, the EROI of their process is less than 2:1, not the 8:1 often claiimed. It is also informative that ethanol biorefinery construction in Brazil peaked in 2008 and virtually zero are now being constructed. The Brazilian government has shifted its attention from ethanol (which had a bad crop in the 2011-12 season and forced them to reduce their gasohol blending from 25% to 20% and IMPORT 1.2 billion liters of ethanol) to their massive new discoveries of offshore oil. ExxonMobil, Chevron, BP and especially Shell (look up Codexis and Alan Shaw) have frittered away hundreds of billions of dollars in a vain pursuit of biofuels. If they are truly energy companies instead of public relations firms and are truly committed to succeed as viable commercial enterprises instead of live by subsidies and corporate welfare, then they need to abandon this foolishness and pursue what works instead of what is politically correct.

Eleven years ago we invited the leader of Shell's Coal Gassification effort to speak at our Business School's annual Energy Investor's Conference. His comments were riveting ...saying that using the Fischer-Tropfs process that was keeping Romel's Panzers running in 1945 in the Ardens with coal-derived diesel fuel - that the 2002 variable cost of making superior diesel was $22 per BARREL.
I went right out and bought a new VW-TDI and enjoyed the 45 to 55 mpg. The year I purchased the car - the VW TDI had their annual rally in Grand Rapids. My son-in-law and I drove the 137 mile Fuel Economy Event and won by short-shifting, staying under 1600rpm, coasting downhill, idling with the clutch in, keeping the windows closed, and drinking a lot of ice water. A bit extreme yes - but 79 mpg and winning was fun.
I recently bought a new, 2013 Passat with the remarkable, quiet, and powerful 2liter TDI engine and amuse my self by watching the instant-update digital MPG screen varying between 45 and 170 mpg and getting into the slipstream (at a safe following distance) on the Interstate and running 75+mpg at 75mph...
Shell et.at. are heading to 300,000 barrels/day at their $20 billion GTL Plant using Quatar's abundant natural gas to make FT-diesel which is such a good fuel it is used mostly to blend quality into Europe's fossil derived downstream diesel-fuel business.
And my new diesel doesn't smoke or make noise - and I can get a speeding ticket anywhere in the world except Germany where they still enjoy driving and clutching to their $money at the same time.

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